Question 1

Which of the following is NOT a characteristic of a perfectly competitive market?

Accepted Answer

Established firms have significant advantages over new ones.

Question 2

In perfect competition, why is each firm considered a price taker?

Accepted Answer

Because the firm's output is a perfect substitute for other firms, so it cannot influence the market price.

Question 3

Suppose the market price for sweaters is $25 and a firm sells 9 sweaters per day. What is the firm's total revenue?

Accepted Answer

$$ \225$$ $

Question 4

A perfectly competitive firm maximizes profit by producing the output at which:

Accepted Answer

$$ MR = MC $$

Question 5

If a firm in perfect competition faces a market price below its minimum average variable cost, what should it do in the short run?

Accepted Answer

Shut down temporarily and incur a loss equal to total fixed cost.

Question 6

Which equation correctly represents a firm's economic loss?

Accepted Answer

$$ Economic\ loss = TFC + TVC - TR $$

Question 7

At the shutdown point, which of the following is true for a perfectly competitive firm?

Accepted Answer

Price equals minimum average variable cost.

Question 8

If the market price is between minimum AVC and minimum ATC, what will a perfectly competitive firm do?

Accepted Answer

Produce where $$ MC = P $$ and incur a loss less than total fixed cost.

Question 9

Which of the following best describes the firm's short-run supply curve in perfect competition?

Accepted Answer

It is the portion of the marginal cost curve above minimum AVC.

Question 10

In the short run, if the market price equals a firm's average total cost at the profit-maximizing output, what is the firm's economic profit?

Accepted Answer

Zero economic profit (break-even).

Question 11

What happens in the long run if firms in a perfectly competitive market are making economic profits?

Accepted Answer

New firms enter, increasing market supply and lowering the price until economic profit is zero.

Question 12

If a technological advance lowers production costs in a perfectly competitive market, what is the initial effect on firms that adopt the new technology?

Accepted Answer

They earn positive economic profits.

Question 13

Which condition must be met for resources to be used efficiently in a competitive market?

Accepted Answer

$$ Marginal\ social\ benefit = Marginal\ social\ cost $$

Question 14

Suppose the market demand for sweaters decreases. What sequence of events will occur in a perfectly competitive market starting from long-run equilibrium?

Accepted Answer

Firms incur losses, some exit, market supply decreases, and price rises until zero economic profit is restored.

Question 15

Which of the following best describes consumer surplus in a perfectly competitive market?

Accepted Answer

The gain from trade for consumers, measured as the area between the demand curve and the market price.

Question 16

A firm in perfect competition faces the following cost structure: $$ AVC = \17$$ $$, $$ ATC = \$$20.14 $$, and the market price is $$ \18$$ $. What should the firm do?

Accepted Answer

Produce where $$ MC = P $$ and incur a loss less than total fixed cost.

Question 17

In the long run, what is the outcome for all firms in a perfectly competitive market?

Accepted Answer

Firms make zero economic profit and produce at the lowest possible average total cost.

Question 18

Which of the following statements about the demand curve for a perfectly competitive firm's product is correct?

Accepted Answer

It is perfectly elastic at the market price.

Question 19

If the market price for sweaters rises due to an increase in demand, what will happen in the short run in a perfectly competitive market?

Accepted Answer

Firms will increase output and may earn positive economic profits.

Question 20

Which of the following is true about producer surplus in a perfectly competitive market?

Accepted Answer

It is the gain from trade for producers, measured as the area between the supply curve and the market price.

Perfect Competition: Microeconomics Study Notes

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